Warren Buffett Justin Industries Investment

Buffett acquired Justin Industries for $570 million in cash in 2000. Justin Industries is the leading maker of Western boots and a premier brick producer in Texas and five neighboring states.

Buffett liked this investment for the following reasons:

First, Justin Industries dominated its niche market. Acme produces 11.7% of industry’s national output, and is widely regarded by the industry as the dominant player. This allows Justin Industries to earn high return on invested capital and deliver significant returns to its investors.

Second, it has strong brand recognition. Buffett reports that in a study in which Texans were asked to name a brand of brick, 75% responded Acme, while only 16% responded with the brand name of the runner-up. This creates customer stickiness and brand loyalty – demand-side factors that help Justin Industries create barriers to entry to keep away competition.

Third, Buffett was able to get the company at a reasonable price. He paid $570 million for $51 million in pretax earnings. The 11x multiple translates to a pretax return of 9%. Paying 11x EBIT may seem expensive, but the company had been growing earnings at 16% a year for the last ten years. This is another example of Buffett paying reasonable prices for companies that have significant growth potential.